Large Banks Hurt Most by Decline in Refis

Mortgage Bankers Association economists estimate that fourth-quarter originations declined by 27% from the prior quarter, but several large banks reported much higher quarterly declines in loan production.

Wells Fargo reported a 37% decline in 4Q mortgage originations as higher rates reduced the refinancing business. JPMorgan Chase reported a 42% quarter-over-quarter decline, Bank of America a 49% decline and U.S. Bancorp a 43% a decline, according to a new Keefe, Bruyette & Woods mortgage banking report.

It appears nonbank originators that rely more on purchase mortgage business probably countered some of the drop-off in loan production by the big banks.

“We believe that nonbanks likely grew market share so the decline for the industry as a whole should be somewhat more moderate than the 40% decline reported by the large originators,” the KBW analysts say.

Meanwhile, the large banks also reported higher fourth-quarter declines in loan applications than the 18% reported by the MBA.

“These declines were generally a little higher than our estimates and are on top of substantial declines in the third quarter as well,” the KBW report says. “We expect lower applications to negatively impact 2014 mortgage banking results.”